Treasury Considering Plan to Ease Mortgage Rates

The Treasury Department is considering a plan to boost the depressed housing market by easing mortgage rates on new home loans.

The plan, which is in the development stages, would bring loan rates down as low as 4.5%, a full percentage point lower than the prevailing rates for 30-year fixed mortgages.

The plan, which was first reported by the Wall Street Journal, was confirmed by CNBC.

Under the plan, the Treasury would buy securities underpinning loans guaranteed by Fannie and Freddie , which are temporarily under the control of the government, as well as those guaranteed by the Federal Housing Administration.

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Officials have said that this plan is different from the one that had previously been championed by FDIC’s chairman Sheila Bair.

"The mortgage rate will come down another 50 to 100 basis points," Pimco's founder and chief investment officer said. "That's basically what the government needs. They need a 4 1/2 percent to 5 percent 30-year rate in order to support home prices and, yes, to encourage refinancing and the process of reliquification within the economy."

Yet many economists say that even with lower mortgage rates, falling home prices and mounting unemployment will keep the housing market in its deepest slump since the Great Depression.